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Public to Private Transactions, Private Equity and Performance in the UK: An Empirical Analysis of the Impact of Going Private

Using a hand collected data set of 122 buy-outs, this paper presents the first analysis of the impact effects of public to private transactions in the UK during a period (1998-2004) in which PTPs have become a significant part of the market for corporate control. We find that performance deteriorates relative to the pre-buyout situation but firms do not perform worse than firms that remain public and there some evidence that performance improves. A similar outcome applies to deals backed by PEPs, however there is no evidence that non-PEPs perform better than the industry average. We find that contrary to expectations, PEP involvement appears to have a negative effect on the change in profitability relative to the situation prior to the deal but this was explained by the fact that PEPs were involved in the largest deals and these had the poorest performance. PEPs performed better than the industry average and no worse than non-PEP deals. PTPs experienced job losses in the years immediately after going private but employment increased subsequently. PEP deals incurred job losses each year while non-PEP deals increased employment increases after the first year post-deal. PTP tax liability falls but this is at least partly caused by the fall in profitability relative to the year before going private. Expenses were also found to be lower after going private and profit per employee higher, indicating increased efficiency. We also find improvements in the z-scores of firms going private with deals involving PEPs achieving significant improvements in their financial health. These results are driven by improvements in efficiency (lower expenses) and an increase in liquidity. The overall impression is one in which PTPs create value by improvements in efficiency and divestment but that this is not being picked up by the traditional accounting based measures of profitability.